On May 2, 2019, the Financial Services Commission (“FSC”) resolved to adopt the proposed amendments to the Regulations on Investigation of Capital Market Transactions (the “Amendment”). The Regulation applies to the FSC and the Financial Supervisory Service (“FSS”) in conducting investigations of unfair trading practices in the securities market.  Summarized below are several key features of the Amendment.  
 

• FSS investigators to be appointed as Special Administrative Investigators with investigative powers to handle major investigations of unfair trading activities in the financial market
  
  The Amendment allows up to ten investigators from the FSS Investigation Division to be designated as “Special Administrative Investigators” with special authority to conduct investigations.  Special Administrative Investigators are empowered to exercise investigative powers that are granted to the police or the prosecutors which include the authority to conduct search and seizure exercises.  The Special Administrative Investigator regime has been deployed in certain sectors of the government where it is viewed that granting of enhanced investigative authority to those civil service officials with specialty knowledge of the sector can serve as an effective means to conduct investigations in the relevant area.  The Amendment requires segregation of physical work space, IT systems and case management between the FSS Investigation Division officers and the designated Special Administrative Investigators within the FSS.  The Special Administrative Investigators will be assigned only to urgent and critical investigations of unfair trading practices in the financial sector that have been selected as “Fast-Track” cases by the Chairman of the Securities and Futures Commission.  Upon conclusion of the investigation by the Special Administrative Investigators, “Fast-Track” cases will be referred directly to the prosecutor’s office for subsequent expedited investigation proceedings.  

• FSC and FSS joint investigations
  
  The Amendment allows the FSC’s Capital Markets Investigation Team (which also has investigative authority) and the FSS to jointly investigate major unfair trading cases to ensure a thorough and effective investigation.  

• Enhanced rights granted to persons being investigated on unfair trading allegations
  
  Persons being investigated for allegations of unfair trading activities will be granted enhanced rights and protections during the investigation proceedings.  They include the right to be represented by legal counsel during the interviews.  Furthermore, the FSS must notify the person being investigated of the expected enforcement measures approximately ten days prior to the date of the Capital Markets Investigation Review Committee hearing and allow the person being investigated the right to review and obtain a copy of his/her written statement submitted to the FSS.   

The above changes are effective immediately as of May 3, 2019 with the exception of the right to be represented by legal counsel during investigative interviews which will become effective three months after the effective date of the Amendment.  

The Amendment is expected to bring noticeable changes to the regulator’s investigation of unfair trading activities.  While the adoption of the Special Administrative Investigator regime to the finance sector will strengthen the FSS’ investigative powers and likely to cause the FSS to be more aggressive during the early stages of an investigation, the enhanced rights granted to those persons being investigated will work towards protecting the rights of those being investigated.